Thursday, August 16, 2012

Coal from Indonesia or USA??

Another boring article on Coal Economics! :)
While every one is clamoring for coal from Indonesia, Australia and South Africa, developments in the farther west might have shifted the overall paradigm of coal scenario.
USA with its increasing Shale gas resources and the emphasis on cleaner coal has seen a decline in coal based electricity generation thereby leading to increased inventory of coal. (So far Cliched!!)
With decreased coal consumption, it was inevitable that US starts exporting Coal from the power hungry countries like China and India. Till date the high prices and domestic consumption in USA were impediments. But they no longer are.
Hence, as predicted Coal has slowly started moving out of USA. 
To begin with its only a trickle, but the interesting thing is it has actually started moving out. 
The below figure provides a snapshot of the coal moving out to the three of the largest consumers:
As expected, with its proximity to USA and the hunger it has of Coal, China is the largest importer of Coal from USA among Asian countries. Still, China has only imported a paltry amount compared to the amount that it imports from Indonesia or South Africa. 
The interesting number is the Cost of Coal. As you can see, the prices from last year to this year in the same duration have nearly halved for China. Similarly India has started imported more coal from USA than earlier. But it still is around $80/ton of FOB. The charges for CIF are still not known.
At $80/ton and with a very optimistic estimate of around $20 for Insurance and Frieght, the variable cost for a sub-critical plant in Coastal India would come to ~Rs2.50/kWh, which is quite an acceptable figure for a power plant.
With huge availability of Coal and with such variable cost, it was just around the cards that some one would crack a deal of imported coal from USA as the major source of Coal.
Just today, the client with whom I am working for made a deal worth $7bn for 25 year assured coal supply from Coal for its power plants and steel plants. Indeed quite an acheivement considering that the client was lagging on all other fronts. 
He would be the largest imported of coal from USA at this juncture. Hopefully the dreadful Coal scenario in India will improve with the assured coal supply from Coal

Wednesday, August 01, 2012

India story of Shale or Shame


As has been the case always, India is only doing a catching up in terms of Shale oil & gas exploration. With USA already reeling under the excess gas production ever in its history, and China going ahead with its second round of bidding for Shale gas exploration. India finally woke up to the possibility of exploration options and hence has prepared a draft policy, which is available for comments on the Ministry of OIl's website.
With the recent power crisis, brining the energy crisis into limelight the shale gas development becomes all the more significant and lot of eyes will remain glued to the way things shape up.
The whole process in a very nascent stages, since at this time even the likes of "Yours sincerely" is also aspiring to bid for the shale gas, India has to be really cautious about the way forward.
One of the most important aspects associated with Shale gas is the (the Nuclear related issue as well) is the long term liability of the developers associated with shale gas development. Also the NELP exloration bidding processes and the tussle between Government and Reliance in the releasing the pending payments to Reliance stand as a big lesson for any party involved in the overall process.
Shale gas is a resources which if not properly regulated may cause immense harm to the surrounding ecology. Some of the most important aspects in shale gas development are surrounding water usage viz. a) Water consumption, b) Stability of the underground water, c) Possibility of various chemicals seeping into the existing water resources. Water consumption is one of the highest in the exploration of shale, and the possibility of re-cycling and re-usage of water is minimal, and hence with all the hue and cry surrounding water availability and usage, how would the developer mitigate the water shortages would be somthing to look out to.
With India already reeling under huge water crisis, it'd be interesting to see the guidelines that Environment ministry would develop to keep a check on Shale gas development.
PNGRB which is the regulatory board surrounding shale gas development as well hasn't had a successful record in exploration and development of a gas based economy in India. The city gas distribution and the NELP exploration possibilities which started with such great hopes have remained only hopes, with the latter alone seeing some success in the form of KG D-6 discovery by Reliance, which of late again has become dud.
With so many stakes and stakeholders involved, I guess it'd not be a problem even if India continues to go on its snail pace in the development of shale gas, since, no one wishes to have a shale gas reservoir drying up the total water in his vicinity and then blaming the private parties for their melancholy towards environment.
Wishing that it'd not be another story of lost opportunity for India.